We have become aware of an increasing volume of tax credit “consultants” in the marketplace targeting our clients to sell them on the process of claiming huge payroll tax refunds using the Employee Retention Tax Credit provisions of the CARES Act. Some situations we are aware of have, in our view, the potential to subject businesses who participate in the scheme to civil penalties, civil fraud penalties or even criminal fraud charges in egregious situations.
The “consultants” are using flimsy arguments when telling business owners that they qualify for the credits even when they clearly do not. The “consultants” benefit from huge commissions ranging from 15% to 35% or more of the credits claimed and do little, if any, real work. Two years from now when the victims get audited by the IRS and call the “consultants” they will more than likely reach a telephone number that has been disconnected. The “consultants” know that the IRS is currently in disarray and believe that only 1% or less of the claims will be examined based upon historical audit rates.
Because of what we are seeing being pitched to our clients and business contacts, we believe that the IRS will soon come to view the ERC as a problem area. Concentrated IRS audits are sure to follow given the huge amount of money involved. We are even aware of radio and media advertisements as prolific as used car warranties and credit card offers pitching the credits. Unfortunately, this will not end well for many and especially the unwary.
Our clients want to claim every rightful credit and tax benefit to which they are entitled – and they should. However, many of our clients are hearing about other businesses that have claimed large refunds and they fear they are missing out. Please know that at Van de Ven CPAs, our goal is to provide proper guidance for legitimate tax benefits and to protect our clients any way we can from unscrupulous parties.
Generally, businesses suffering significant declines in revenues during portions of 2020 and 2021 due to government imposed full or partial shutdowns can potentially be eligible to claim the credits. Also, businesses who have experienced operational disruptions due to government imposed full or partial shutdowns or who have been disrupted because of a supplier who was completely or partially shutdown due to the pandemic may be eligible for the credits.
Testing revenue declines is a very objective test – either a business qualifies, or it does not. Business restrictions and supply chain issues are more subjective evaluations, and these latter criteria are the ones that the “consultants” are preying on. We’ve seen some extremely flimsy positions proposed to our clients that are simply unsupportable.
Please contact us if you have any questions or need assistance, especially if you have been pitched by one of the many “consultants” out there. We can help you avoid becoming a victim of potential scams.
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